Question

Head-First Company plans to sell 4,400 bicycle helmets at $84 each in the coming year. Unit...

Head-First Company plans to sell 4,400 bicycle helmets at $84 each in the coming year. Unit variable cost is $50.40 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $19,000 and fixed selling and administrative expense is $30,300.

Required:
1. Calculate the variable cost ratio.
2. Calculate the contribution margin ratio.
3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin.

Homework Answers

Answer #1
Particulars Amount ($)
1 Variable cost ratio
Variable cost 50.4
Selling price 84
Variable cost ratio = Variable cost/Selling price 60.0%
2 Contribution margin ratio
Variable cost 50.4
Selling price 84
Contribution (Selling price-Variable cost) 33.6
Contribution margin ratio (Contribution/Sales) 40%
3 Contribution margin Income statement
Particulars Units Amount ($) Total % of sales
Selling price 4400 84 369600 100.00%
Variable cost 4400 50.4 221760 60.00%
Contribution 4400 33.6 147840 40.00%
Fixed factory overheads 19000 5.14%
Fixed selling expenses 30300 8.20%
Total fixed overheads 49300 13.34%
Net profit 98540 26.66%
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